Net loss was $4.9 million or $(0.26) per share, compared to a loss of $0.8 million or $(0.04) per share. The net loss in 2017 included a $2.7 million expense from acquisition, restructuring and other costs compared to a $0.8 million benefit in the prior year.

"We are keenly focused in 2017 on driving improved financial results and delivering optimal performance in support of our new and existing client relationships," said Mike Willoughby, CEO of PFS. "During the first quarter, we made strong progress on both of these objectives. Our existing client satisfaction was evidenced through continued contract expansion, including the three-year contract extension we signed in March with our long-time customer, L'Oreal USA. Additionally, our new client wins reflect support for the breadth and strength of our service offering for both professional services and operations related engagements, as well as an ongoing improvement in B2B project wins.

"We continue to manage our omni-channel operations activity with a focus on
driving higher-margin engagements, while also taking ongoing actions to reduce overhead and other costs where possible. We expect the benefit of our profitability initiatives to take hold in the second half of the year, driving targeted adjusted EBITDA growth of 26% to 43% in 2017."

First Quarter 2017 Financial Results

Total revenues in the first quarter of 2017 increased 5% to $78.8 million compared to $75.1 million in the same period of 2016. Service fee revenue in the first quarter increased 16% to $57.3 million compared to $49.3 million last year. Product revenue from the company's last remaining client under this legacy business model was $11.3 million compared to $13.6 million in the same period of 2016.

Service fee equivalent revenue increased 16% to
$57.9 million compared to $50.0 million in the year-ago quarter, driven by both new and expanded client relationships.

Service fee gross margin in the first quarter of 2017 was 30.9% compared to 34.6% in the same period of 2016. The decrease was due to the impact of several large fulfillment clients that were implemented subsequent to the March 2016 quarter which operated at lower than targeted margin performance. Through various initiatives, the company is targeting to improve the financial performance of its omni-channel operations activity while also continuing to focus on higher margin professional services engagements.

Net loss in the first quarter of 2017 was $4.9 million or $(0.26) per share, compared to a net loss of $0.8 million or $(0.04) per share in the
same period of 2016. Net loss in the first quarter of 2017 included $2.7 million of acquisition-related, restructuring and other costs, $0.8 million in amortization of acquisition-related intangible assets, $0.5 million in stock-based compensation expense, and $0.2 million of deferred tax expense related to goodwill amortization. This compares to $0.8 million in amortization of acquisition-related intangible assets, $0.8 million in stock-based compensation expense, and a $0.8 million benefit from acquisition-related, restructuring and other costs in the same period of 2016.

Adjusted EBITDA was $3.7 million compared to $3.8 million in the same period of 2016. As a percentage of service fee equivalent revenue, adjusted EBITDA was 6.3% compared to
7.5% in the year-ago quarter. The decline in adjusted EBITDA margin was primarily driven by the aforementioned decline in service fee gross margin.

Non-GAAP net loss in the first quarter of 2017 was $0.8 million compared to non-GAAP net income of $41,000 in the first quarter of 2016.

At March 31, 2017, cash and cash equivalents totaled $15.6 million compared to $24.4 million at December 31, 2016. Total debt was $53.0 million compared to $59.7 million at December 31, 2016.

2017 Outlook

PFS is reiterating its outlook for 2017 service fee equivalent revenue to range between $240 million and $250 million, reflecting growth of 5% to 9% from 2016.
The company also maintains its target for adjusted EBITDA to range between $23 million and $26 million, reflecting 26% to 43% growth from 2016.

Conference Call

PFS will conduct a conference call today at 5:00 p.m. Eastern time to discuss its results for the first quarter ended March 31, 2017.

PFS CEO Michael Willoughby and CFO Tom Madden will host the conference call, followed by a question and answer period.

Please call the conference
telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Liolios at 1-949-574-3860.

PFSweb (PFS) (NASDAQ:PFSW) is a global commerce service provider of solutions including digital strategy consulting, digital agency and marketing services, technology development services, business process outsourcing services, and a complete omni-channel technology ecosystem. The company provides these solutions and services to major brand names and other companies seeking to optimize every customer experience and enhance their traditional and online business channels. PFS supports organizations across various
industries, including Procter & Gamble, L'Oreal USA, LEGO, Canada Goose, ASICS, Roots Canada Ltd., PANDORA, Charlotte Russe, Anastasia Beverly Hills, David's Bridal, T.J. Maxx, the United States Mint, and many more. PFS is headquartered in Allen, TX with additional locations in Tennessee, Mississippi, Minnesota, Washington, New York, Ohio, North Carolina, Canada, Belgium, United Kingdom, Bulgaria, and India. For more information, please visit www.pfsweb.com or download the free PFS IR App on your iPhone, iPad, or Android device.

Non-GAAP net income (loss) represents net income (loss) calculated in accordance with U.S. GAAP as adjusted for the impact of non-cash stock-based compensation expense, acquisition-related, restructuring and other (income) costs, amortization of acquisition-related intangible assets and deferred tax expense for goodwill amortization.

Service fee equivalent revenue represents service fee revenue plus the gross profit earned on product revenue and does not alter existing revenue recognition.

Our
service fee equivalent revenue target for 2017 includes an estimated gross margin on product sales of approximately $2 million (based on targeted product revenue of $42 million less targeted cost of product revenue of $40 million) plus a targeted range of between $238 million to $248 million of service fee revenue.

The adjusted EBITDA outlook for 2017 have not been reconciled to the company's net loss outlook for the same period because certain items that would impact interest expense, income tax provision (benefit), depreciation and amortization (including amortization of acquisition-related intangible assets), stock-based compensation, and acquisition-related, restructuring and other (income) costs, all of which are reconciling items between net loss and adjusted EBITDA, cannot be reasonably predicted.
Accordingly, reconciliation of adjusted EBITDA outlook to net loss outlook for 2017 is not available without unreasonable effort.

Non-GAAP net income (loss), EBITDA, adjusted EBITDA and service fee equivalent revenue are used by management, analysts, investors and other interested parties in evaluating our operating performance compared to that of other companies in our industry. The calculation of non-GAAP net income (loss) eliminates the effect of stock-based compensation, acquisition-related, restructuring and other (income) costs, amortization of acquisition-related intangible assets, deferred tax expense for goodwill amortization, and EBITDA and adjusted EBITDA further eliminate the effect of financing, remaining income taxes and the accounting effects of capital spending, which items may vary from different companies for reasons unrelated to overall operating performance.
Service fee equivalent revenue allows client contracts with similar operational support models but different financial models to be combined as if all contracts were being operated on a service fee revenue basis.

PFS believes these non-GAAP measures provide useful information to both management and investors by focusing on certain operational metrics and excluding certain expenses in order to present its core operating performance and results. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results. The non-GAAP measures included in this press release have been reconciled to the GAAP results in the attached tables.

Forward-Looking Statements

The matters discussed herein consist of forward-looking information under the Private Securities
Litigation Reform Act of 1995 and is subject to and involves risks and uncertainties, which could cause actual results to differ materially from the forward-looking information. PFS' Annual Report on Form 10-K for the year ended December 31, 2016 identifies certain factors that could cause actual results to differ materially from those projected in any forward looking statements made and investors are advised to review the Annual Report of the company and the Risk Factors described therein. PFS undertakes no obligation to update publicly any forward-looking statement for any reason, even if new information becomes available or other events occur in the future. There may be additional risks that we do not currently view as material or that are not presently known.